Putting The You In The Terror Debate
By Andy Carpenter 
The level to which the media sink in their effort to insult and ignore you on important issues, such as the economy and finance, still continues to surprise. This week, wags were atwitter over which presidential candidate would benefit most should terrorists strike the US prior to the November presidential election. Nary a drop of ink was spilled in an effort to discern the effect such an attack would have on your bottom line… the country’s bottom line. The terror flap began when John McCain’s senior advisor Charlie Black (a much nastier, far more cutthroat incarnation of Karl Rove) suggested that McCain would benefit from a pre-election attack on the US homeland. The dull and dutiful media sold the sizzle and not the steak. It put your and the country’s interests aside. Instead, it thin sliced the issue’s more perverted aspects. Over and over it focused on but two post-attack scenarios. One insisted that McCain’s ability to be elected would skyrocket. His military service and legislative experience give him an advantage as yet another “wartime president.” The other suggested that a new terror attack would lead voters to decide that the country needed to change course. That scenario rests on the logic that voters would want change because six-years of preparation (and the failure to capture Osama bin Laden) couldn’t prevent another attack. The only part you played in those scenarios was which candidate could best leverage the tragedy to win your vote. So, at the risk of getting more laughable complaints about this author’s intellectual short comings – as if you really wanted to read one of my Harvard research papers or as if I could even compete with the intellectual heft found on most Internet websites – let’s take a quick look at what the media ignored this week.
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The Economy Is You In the year after the 2001 terrorist attacks on the US, a Global Business Policy Council survey came up with an interesting finding. It discovered that international corporate investors rate terrorism as one of the most important factors behind their foreign direct investment decisions. Additionally, the GBPC found that in an open global economy like today’s, attacks lead corporate investors to diversify their FDI across the globe as a way of managing risk. On top of that, researchers such as Alberto Abadie, at Harvard’s John F. Kennedy School of Government, found that terrorism has a negative and sizeable impact on foreign investment positions. Abadie found that terror risks “will have a large effect on the allocation of capital across countries.” The reason is that “an increase in the intensity of catastrophic terrorism not only increases the variance of the return to investment, it also decreases its average.” Corporate investors with low levels of risk aversion have no reason to diversify country risk. And worse, they react abruptly to relative changes in the intensity of terrorism. In short, smart international investors have no reason to invest in countries with relatively high levels of terrorist risk. This is a crucial point to focus on today. You see, the United States has borrowed in excess of one trillion dollars from China and Japan combined. One of the ways some of those dollars can be repatriated is by foreign direct investment in the US. The soft real estate market and the under-performing US stock market are perfect places for that money to flow. In fact, many global economists think there is about to be a massive influx of foreign money into cheap US stocks. That’s great for you because all that action means stock prices should rise. And, foreign money and investors flowing into US banks and real estate inures to your benefit, as well. After all, Chinese investment groups already bought big stakes in Wall Street firms such Bear Stearns and Morgan Stanley. Though, it looks like Beijing has permanently scuttled China Development Bank’s proposed $2 billion investment into troubled Citigroup. Of course, that won’t stop Citigroup from seeking other cash-rich foreign investors. In fact, in its effort to raise $10 billion, Citi is already courting the Government of Singapore Investment Corporation and the Kuwait Investment Authority. All this foreign direct investment should help stabilize the big banks. That, in turn, would be one factor that helps stabilize the US economy. So, forget – for the moment – how the next attack will continue to erode civil liberties, the rule of law and even its cost on human capital. And forget about how it could help a presidential candidate. A major terror attack could further destabilize a wobbling US economy. And, in an era when there are plenty of places on the globe that can attract foreign direct investment, that would be a very bad situation for you. Of course, neither the media nor the Charlie Blacks of the world really care about you. A terror attack means big money for the media, particularly for cable news and talk radio. And, if Charlie Black is right, it means a West Wing office for him, which is all he really cares about. What part of that is about you? By the way, I first met Charlie Black in the early 1990s when I was a journalist and Lynn was teaching at the University of North Carolina. Anyone who thinks that John McCain is a moderate (a good thing for some people and a very bad thing for other people) will find it instructive to Google Black’s name for his bio. Then, Google Black’s name in a combination with the name Harvey Gantt. Both sides of the McCain-the-moderate debate will find what it needs there. Me, I’ll stay out of this one, because you all know I don’t have a political bone in my body. Have a great weekend. Andy
P.S. To let me know what you thought of today's article, send an e-mail to: feedback@investorsdailyedge.com. [Ed. Note:In the past 10 months Asia Business & Investing subscribers have booked outlandish gains. These recent winners include 562%, 300%, 383% 197% 149% 123%, 102%, 649%, 319%, 179%, 77%, 196% 100%, 126%, 185% and 430%. Find out more about how you could tap into superb gains like these right here.]
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